Article first published as Indiaâ€™s Q1 GDP Growth Results are Impressive, But Inflation is Still a Concern on Blogcritics.
It is widely believed that the Asian emerging economies are leading the world economy to recover from its worst crisis of 2007, since the ‘Great Depression’ of 1930s. After observing the GDP growth figure of 8.8% in the first quarter of FY 2010-11 (begins from April 2010 and ends in March 2011), it is understood that the expectations on India are not misplaced. The Planning Commission has released the data for Q1 last Tuesday. India’s GDP has grown by 8.8% from 8.6% of its previous quarter i.e. 4th quarter of previous financial year 2009-2010 despite partial withdrawal of stimulus measures. It is the highest growth rate since last quarter of 2006-07. The GDP growth of Asia’s 3rd largest economy after China and Japan is particularly notable because of the slow pace at which the GDPs of the developed economies like the US, Japan and the EU have grown in the same period.
As per the data released the robust GDP growth is driven by equally robust manufacturing sector growth that grew by 12.4 percent against 3.8 percent in the same period of last fiscal year. Agriculture and allied activities also fared well which expanded by 2.8% against 1.9% in Q1 of FY10. India’s Prime Minister Dr. Manmohan Singh has been advocating that agriculture sector has to grow by at least 4% for India’s GDP to grow by double digit figure. The Finance Minister Pranab Mukherjee expressed confidence that Indian GDP growth would register the targeted figure of 8.5%. The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia is even more optimistic of GDP growth rate for the present fiscal surpassing the targeted figure of 8.5%.
Reuters | Tue Jul 20, 2010 | 2:20pm IST
India is looking to rejig its subsidy mechanism, Cabinet Secretary K.M. Chandrasekhar told reporters on Tuesday, indicating the government’s intent in slashing its fiscal deficit. India spent about $26 billion in food, fuel and fertiliser subsidies in the past fiscal year that ended in March, and a reduction in the subsidy bill will help it rein in fiscal deficit to the budgeted 5.5 percent level for the current year. New Delhi recently freed petroleum pricing from government control, and raised the prices of other fuels in a move to reduce its fuel subsidy burden. "We are looking at subsidies, how the subsidy system can be rejigged to ensure it reaches the poorest of the poor on one hand, and at the same time it incentivises production," Chandrasekhar said.
Monsoon rains, which are critical to cooling food prices, are likely to be normal to good this year, he said. Food inflation snapped a two-week easing trend in early July, reinforcing expectations for a 25-basis points hike in the central bank’s policy review next Tuesday. The weather office last week said monsoon rains, which irrigate 60 percent of the country’s farms, were 24 percent below normal in the week to July 14. The cabinet secretary, the highest ranked bureaucrat in the country, said he expects headline inflation to come down to between 5 to 6 percent by the end of this year.
The wholesale price index rose 10.55 percent in June from a year earlier, and what could concern policymakers the most was the pick-up in non-food manufacturing inflation that accelerated to 8.6 percent from 6.6 percent in May, suggesting broader inflation is becoming demand-driven. The Reserve Bank of India closely monitors movement in prices of non-food manufacturing items, which make up a little over half of the wholesale price index. The central bank had surprised markets on July 2 by lifting policy rates by a quarter point, its third hike this year, citing a rapid pick-up in non-food prices.
Reuters | Wed Apr 7, 2010 | 3:36pm IST
The Reserve Bank of India will have to further tighten monetary policy on April 20 if prices continue to rise, as expected, from 9.89 percent headline inflation in February, the chief statistician said on Wednesday. “If RBI is signaling a concern about inflation, and if inflation continues to accelerate, they will certainly do something,” Pronab Sen told Reuters in an interview on Wednesday. The Reserve Bank of India (RBI) will review its monetary policy on April 20. Sen, however, declined to specify what policy actions were required, saying it was for the central bank to decide.
India’s four-month spell of wholesale price inflation above the RBI’s perceived comfort zone of 5 percent prompted the central bank in March to unexpectedly hike its key lending rates by 25 basis points. The Reserve Bank last month warned of inflationary pressures from higher capacity utilisation and rising commodity and energy costs. Sen said WPI inflation in March was likely to be higher than February’s 9.89 percent, partly due to a low base effect. Headline inflation could start easing from April when the base effect starts wearing off, he added, noting that food price inflation has already started moderating.
A Reuters poll shows analysts expect lending rates to go up by another 100 basis points between now and the end of December. The food price index rose an annual 16.35 percent in the 12 months to March 20,
Reuters | Mumbai | Fri Jan 29, 2010 | 1:55pm IST
The Reserve Bank of India (RBI) surprised markets by raising banks’ cash reserve requirements by more than expected and warned of mounting inflation, suggesting its next move may be an interest rate rise. The Reserve Bank of India (RBI) kept short-term interest rates steady at its quarterly policy review on Friday and warned that monetary policy would be ineffective unless the government rolls back its borrowing, on track to hit a record 4.5 trillion rupees ($97 billion) this fiscal year. The RBI lifted the reserve ratio by 75 basis points rather than by up to half a percentage point as pencilled in by markets, joining other Asian central banks in gradual tightening of loose monetary policies.
On Thursday, the Philippines raised a rate on a short-term lending facility, and this month China started to tighten policy by raising banks’ reserve requirements, clamping down on loan growth and accepting higher yields at bill auctions. Despite rising inflationary pressures, the government has pressured the RBI to hold off raising rates, saying it would undermine economic recovery, hurt only slowly picking up bank lending and spark potentially destabilising capital inflows. “An increased confidence in recovery has encouraged RBI to clearly and explicitly shift their stance from ‘managing the crisis’ to ‘managing the recovery’,” said Deepali Bhargava, economist at ING VYSYA Bank in MUMBAI. Continue reading
Reuters | Mumbai | Tue Dec 29, 2009 | 4:08pm IST
India’s monetary policy focus is shifting to managing recovery and containing inflation from fostering growth after the global downturn, a deputy governor at the Reserve Bank of India (RBI) said. Shyamala Gopinath said rising food prices were fuelling concerns that they might lead to broader price pressures and the policy challenge was to address the supply-side constraints. Her comments, which reinforced market expectations of monetary tightening in January, helped push the 10-year benchmark bond yield up 5 basis points on Tuesday to 7.69 percent. It had closed at 7.68 percent on Thursday. Financial markets were closed on Friday and Monday for holidays.
“The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation,” Gopinath said in a speech delivered in Bangalore on Monday and released by the central bank on Tuesday. “Since supply shocks take time to taper off, there is a risk that high Continue reading